Construction Review 6

December 2010 Introduction Season's greetings and welcome to our December Construction review. In this edition we consider cases concerning the legal responsibilities of: . sub-contractors (and others) to subsequent occupiers; . quantity surveyors when valuing works; and . designers when relying on specialists. We also highlight the principal changes made by the RIBA in its 2010 suite of contracts and look at a potential method of dealing with an unfavourable adjudication decision. Contacts If you have any queries regarding the matters raised in this e-bulletin please contact: Guy Lane Peter Stockill Partner, BLM London Associate, BLM London [email protected] [email protected] Contents Liability of sub-sub-contractors/consultants to tenants Scope of a quantity surveyor’s duties Consultant’s liability for specialist’s designs The RIBA suite of agreements 2010 Correcting fundamental mistakes made in adjudication Liability of sub-sub-contractors/consultants to tenants Linklaters Business Services v McAlpine Ltd & Others [2010] EWHC 2931 (TCC) involved a dispute concerning the insulation of chilled pipework for the refurbishment of office premises at 1 Silk Street, London. Linklaters became the tenant immediately upon completion of the refurbishment. The developer had employed McAlpine, as main contractor and McAlpine employed How Engineering Services as M&E sub-contractor. How employed Southern Insulation (Medway) Ltd to supply and install thermal insulation for the chilled water pipework serving the air conditioning system. 1 Almost 10 years after practical completion a leak occurred from one of the chilled water riser pipes in the premises which led to the discovery of widespread corrosion. This in turn led Linklaters, on advice, to replace the corroded pipework throughout the buildings. In March 2007, Linklaters informed McAlpine and How of the leaks and its intention to pursue a claim against them on the grounds that the pipework had been inadequately insulated. Court proceedings were later issued against McAlpine and How, and How made a claim against Southern. Linklaters succeeded in its claims against McAlpine and How. The issues arising in those claims are largely unremarkable, although one point to note is that the Employer’s Requirements stated that ‘first class workmanship’ was required. The judge held that this necessarily involves providing a quality of workmanship which is above the ordinary. The implications of agreeing to such an elevated standard of workmanship (rather than the usual obligation to carry out the works in a good and workmanlike manner or as a competent contractor) need to be fully considered when agreeing the terms of engagement. The claims against Southern gave rise to the most interesting issues, albeit that the judge held that Southern had not been negligent, so his comments on most of these are persuasive but not binding authority. 1 The judge found that Linklaters had sufficient interest in the pipework to bring a claim in tort, even though the pipepwork was not within Linklaters’s leased area, because Linklaters was obliged to keep the pipework in good and substantial repair and to renew it as necessary. 2 The judge considered the argument put forward by Southern that the claim by How (pursuant to a duty of care in tort concurrent with its contractual duty) was time-barred, but decided it would not have been, despite the fact that the claim against Southern was presented some 13 years after completion of the works. The judge reasoned that How’s loss (which was financial loss directly flowing from defective work) only arose from the claim made against it by Linklaters and accordingly the earliest date at which the relevant loss can be said to have been incurred was the time when the claim was first intimated (March 2007). How would therefore have had six years from 2007 in which to bring a claim against Southern (subject to the statutory 15 year long-stop from the negligent act or omission). 3 Southern had previously applied to strike out How’s claim for contribution under the Civil Liability (Contribution) Act 1978 on the basis that no duty of care to Linklaters could arise in relation to (corrosion) damage to the pipework covered by any carelessly applied insulation as the pipework and the insulation was ‘the thing itself’. (It has been established law since 1932 and the House of Lords case of Donoghue v Stevenson – the snail in the bottle of ginger ale – that claimants can recover in tort for personal injury or damage to ‘other property’ flowing from the supply of defective goods but cannot recover for damage to the carelessly manufactured, designed or constructed ‘thing itself’ (so that Mrs Donoghue could recover damages for her personal injuries but could not recover the price paid for the ginger ale). Subsequent case law addresses the often difficult question of how this would be applied to a ‘complex structure’ such as a building and the matter was raised at a hearing in May 2010, but left open pending trial. At trial, the judge considered previous judicial comments (mostly non-binding) giving examples of different elements of a finished ‘thing’ giving rise to recoverable damage to other elements, such as defective wiring causing fire damage to the rest of the building. He distinguished those examples by comparing this case to examples of faulty components within an installation (such as a faulty valve within a boiler) causing damage to that installation. He considered that the insulated chilled water pipework was essentially one thing for the purposes of tort as chilled water pipework could not function as such without insulation – the water would not stay chilled and the pipework would 2 Comment The brevity of the judge’s (non-binding) comments on limitation belie the difficulties in this area of the law and it remains to be seen whether they will be followed. If followed, they will substantially extend the potential period of time for which sub-contractors/consultants are on risk. In any event, his comments provide a reminder of the value of express limitation clauses, even in simple contracts, in order to restrict all liability, whether arising in contract or tort, to a specific time period. Having, tantalisingly, left open questions surrounding the complex structure theory at a hearing in May, the judge’s ultimate decision accords with previous judicial opinion. There is no doubt an element of policy in his decision, in order not to ‘open the floodgates’ to claims for economic loss in tort. Parties in Linklaters’s position should suffer no injustice provided they obtain collateral warranties from the parties providing work or services on their premises and indeed Linklaters were successful in their claims against McAlpine and How for breach of their collateral warranties. Zita Mansi Associate, BLM London Scope of a quantity surveyor’s duties Does a quantity surveyor owe its client a duty only to value work that is not obviously defective? This was the issue in the recent case of Dhamija & Another v Sunningdale Joineries Limited & Others [2010] EWHC 2396, which concerned a dispute over defective work between a house owner and amongst others, a quantity surveyor, where there was no written or oral contract. The client alleged that the quantity surveyor owed them a duty ‘to only value work that had been properly executed by the contractor and was not obviously defective’ and that this duty had been breached (listing hundreds of alleged defects). The quantity surveyor disagreed and applied to strike out the claim. Sutcliffe v Chippendale & Edmonton (1971) 18 BLR 149 is the leading authority on the obligations owed by quantity surveyors in connection with defective work. In that case, the judge found that an architect was duty bound to notify the quantity surveyor of any work deemed not to be properly executed, in advance, in order to give the quantity surveyor an opportunity to exclude it. A similar view was expressed in Jackson and Powell on Professional Liability: “where a quantity surveyor is also engaged by the employer, the architect should keep him continually informed of any defective or improperly executed work observed so as to give him the opportunity of excluding it from interim valuations”. The judge relied on these sources in rejecting the argument that there was an implied term which meant that, if defective work was noticed by the quantity surveyor, he must bring it to the attention of the architect. Instead he found that there was an implied term that the quantity surveyor should act with the reasonable care and skill of quantity surveyors of ordinary experience and competence when valuing the works properly executed for the purpose of issuing interim certificates. 3 He considered that the client was attempting to turn the usual position on its head, by requiring the quantity surveyor to tell the architect about problematic work and to make the quantity surveyor liable for quality as well as quantities. This was inconsistent with wording on the quantity surveyor’s interim valuation, which stated that all issues of defective work were for the architect to address and in practice the architect had drawn items of defective work to the quantity surveyor’s attention. The judge expressly rejected a passage in Hudson’s Building and Engineering Contracts which suggested that the quantity surveyor had a duty to inform the architect of defective work noticed during visits for the purpose of undertaking valuations, in case the architect has missed it. He also rejected the suggestion that an owner would have a right of action against a quantity surveyor who failed to raise glaring defects. As a result the application was partly successful, but the claim continues in order to determine whether the quantity surveyor had acted with reasonable skill and care in valuing the works.

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